The board of Driver Group plc (LON:DRV) has announced that it will pay a dividend on the 27th of October, with investors receiving £0.0075 per share. This means the dividend yield will be fairly typical at 4.7%.
See our latest analysis for Driver Group
Driver Group Might Find It Hard To Continue The Dividend
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Driver Group is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.
EPS has fallen by an average of 54.8% in the past, so this could continue over the next year. While this means that the company will be unprofitable, we generally believe cash flows are more important, and the current cash payout ratio is quite healthy, which gives us comfort.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was £0.014 in 2013, and the most recent fiscal year payment was £0.015. Its dividends have grown at less than 1% per annum over this time frame. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.
Dividend Growth Potential Is Shaky
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Earnings per share has been sinking by 55% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.
Driver Group's Dividend Doesn't Look Sustainable
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would be a touch cautious of relying on this stock primarily for the dividend income.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for Driver Group you should be aware of, and 1 of them is a bit unpleasant. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.